hsbc a4 portrait 2018 · pacific (apac) and middle east north africa turkey (menat), there is a...
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Asia Pacific: Sustainability driving the
Infrastructure and Structured Finance market
Financial market participants are becoming
increasingly conscious about the long-term systemic
risks posed by uncontrolled climate change and
broader sustainability risks, highlights Jonathan Drew,
Managing Director, Sustainable Finance, Real Asset
and Structured Finance group at HSBC in Hong Kong.
“Put simply, sustainability risks - such as extreme
weather, excessive pollution in cities, deteriorating
health, loss of biodiversity and productivity of natural
resources, and the need to change itself - will have
HSBC Issuer Services
Key takeaways
♦ As organisations increasingly adopt
sustainability related measures across Asia-
Pacific (APAC) and Middle East North Africa
Turkey (MENAT), there is a growing
requirement for infrastructure and structured
finance markets to continue to adapt the fast-
changing environment.
♦ While Asia Pacific’s progressive regulations
and initiatives such as the Belt and Road are
key sustainability drivers, HSBC experts
anticipate technology will also play part an
important part.
♦ Financing will also become increasingly critical
as MENAT markets try to diversify their
economies and reduce overcrowding in major
cities.
♦ Agency and trustee roles in such transactions
are a strategic tool as clients turn to Issuer
Services providers who can support
transparency and monitoring requirements,
while leveraging their escrow solutions.
financial consequences, will impact valuations and
could impact the ability of clients to service their
debt.
Financial market regulators are demanding that
financial institutions address these risks and wider
society is demanding that businesses and financial
institutions make the transition towards a more
sustainable and lower carbon business model,” he
says.
We are now seeing action being taken across the
region. APAC regulators are also adopting
progressive policies to encourage organisations to
embrace sustainable business practices. For
instance, Hong Kong’s Securities and Futures
Commission (SFC) issued guidance urging
investment funds running ESG (environment, social,
governance) strategies to become more transparent
with their clients about how they incorporate and
apply ESG into their operating models1. The Hong
Kong Stock Exchange has raised the bar on ESG
related disclosure requirements and the Monetary
Authority of Singapore (MAS) announced that it will
publish Environmental Risk Management guidelines
for banks, insurers and asset managers in Q1 of
20202.
Elsewhere, the People’s Bank of China (PBOC) is
pushing through with its own green bond standards3.
China is the regional leader in the green bond
market and has seen its issuances increase year-
on-year by 49% since 20184.
1 SFC (April 11, 2019) SFC publishes guidance on enhanced disclosures for green or ESG funds2 MAS (November 11, 2019) “Green finance for a sustainable world” – keynote speech3 Reuters (April 11, 2019) Hong Kong regulator says ESG funds must justify their green credentials4 Climate Bonds Initiative – China Green Bond Market Newsletter H1 2019
2 HSBC Issuer Services
Last year $30.1 billion of green bonds were issued in China
alone5, a massive increase from 2015 when just $500
million was raised following one single issue in the whole of
APAC6.
“The risks of not being sustainable in today’s market are
vast, but I am optimistic about the future of infrastructure
and structured finance market in APAC. There is going to be
a mass replacement of machines that burn fossil fuels for
power generation, in industrial and manufacturing
processes, as well as in infrastructure and the delivery of
services, with low carbon and renewable alternatives. This
process will happen at different but accelerating speeds in
different sectors as technologies develop and mature
leaving old technologies financially stranded. Nearly
everything – whether it is our cities, methods of
transportation or food production – is going to undergo
massive changes, and there needs to be financing to
support the required investment” says Drew.
Case study:
Helping Bangladesh to strengthen its
agricultural production
HSBC’s Infrastructure and Real Estate team led a
USD300m 14Y MIGA-covered loan for the
construction of a fertilizer plant in Polash under the
district of Narsingdi in Bangladesh to be
implemented by Bangladesh Chemical Industries
Corporation (BCIC), the state-owned fertilizer
manufacturer in the People’s Republic of
Bangladesh. HSBC Issuer Services was appointed
to be the Facility Agent on the transaction.
Bangladesh is an agricultural powerhouse where
the agriculture and forestry sector accounts for
more than 10% of its GDP, with approximately 40%
of the workforce engaged in agriculture.
In addition to an increasing demand for fertilizer
due to the country’s recent growing economy and
rising population, BCIC’s aging existing plants have
caused the producer to rely on the import of
fertilizer to satisfy part of the strong demand.
Under these circumstances, this project is expected
to allow the BCIC to increase domestic production,
making a significant contribution to the economic
development of Bangladesh. Furthermore, the
project could help reduce the environmental impact
and increase urea production, by utilising the new
CO2 capture technology.
Jonathan Drew
MD, Sustainable Finance, Real
Asset and Structured Finance
group.
“Put simply, sustainability risks - such as
extreme weather, excessive pollution in
cities, deteriorating health, loss of
biodiversity and productivity of natural
resources - will have financial
consequences and could impact the ability
of clients to service their debt.” The impact of Covid-19
Covid-19 has created an unprecedented global
crisis, forcing agencies and governments to work in
coalition with each other to mitigate the disease’s
spread. It has also prompted a surge in interest in
ESG-linked products. For example, a number of
corporates in China have already issued Covid-19-
linked bonds, helping them with their own financing
requirements while simultaneously providing
proceeds towards the wider fight against the
outbreak.
5 Climate Bonds Initiative –(January 16, 2020) Green bonds reach record $255
billion for CY 2019 – new milestone6 Financial Times (October 28, 2019) Asia-Pacific issuance of green bonds hits
record high of USD18.9 bn
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In light of the growing focus on sustainability, Drew
highlights that HSBC Issuer Services is an excellent
complement to the bank’s infrastructure and structured
finance division. “Clients primarily come to banks for
financing but they realise very quickly that there is also a
transactional component to these deals. In infrastructure
and structured finance, it is essential that the operations
underpinning transactions are efficient and that is where
Issuer Services come in. Borrowers want to know there
is an efficient platform by which they can communicate
and interact with their financial partners,” adds Drew.
Recognised as the “World’s best bank for sustainable
finance”8, HSBC has been an active an industry leader
in recent years, supporting the issuance of green, social
and sustainable bonds. Moreover, there has also been a
significant increase in infrastructure finance activity
focusing predominantly on energy transitioning in APAC.
“We have seen a number of energy transformation
programmes as industries move away from pure coal to
cleaner coal, natural gas and renewables,” says Suvir
Loomba, Head of Issuer Services, APAC at HSBC.
Use of Proceeds, Management of Proceeds and
Reporting form three of the four core Green, Social and
Sustainability Bond Principles. It is also at the heart of
the activities performed by a trustee or an agent in any
capital markets transaction. The bank’s Issuer Services
unit specialises in providing onshore and offshore
agency and trustee services for bonds and capital
financing transactions. The division has evolved its
capabilities to support clients’ green bonds transactions,
particularly with regards to the application of the green
bond principles.
“The green bonds and green lending principles place a
strong emphasis on disclosure and use of proceeds by
issuers or borrowers. Clients who issue or borrow under
these principles are expected to abide by obligations
such as prompt disclosure of information, monitoring the
usage of the proceeds and ensuring they are used
strictly for the purposes stated in the terms. Therefore,
appointing an independent, qualified trustee or an agent
becomes important,” explains Ganesh Iyer, Global Head
of Escrow Product at HSBC Issuer Services.
Experienced trustees and agents who understand the
principles, can play a leading role in helping clients
disseminate information promptly and as transparently
as possible.
Case study:
Empowering our clients to deliver their infrastructure projects
♦ HSBC led a USD200m inaugural club loan for VPower, a Hong Kong-listed distributed power specialist and Asia’s
leading distributed power station owner and operator, supporting emerging markets’ course to transit to lower
carbon-emitting power generation solutions. HSBC’s Issuer Services team served as the Agent Bank for the
transaction. Throughout the loan arrangement process, HSBC has championed strategic discussions around
sustainable finance and acted as the Sole Climate Action Structuring Bank for VPower, helping the client to tailor its
first Climate Action Finance Framework which successfully obtained the HKQAA certification7. The loan has a
Climate Action tranche which is to be used for refinancing projects that contributes to improve carbon emitting mix in
emerging markets.
♦ Mong Duong 2 (MD2) is a power plant in Vietnam with a project value of USD2.1b. In 2011, HSBC Issuer Services’
Hong Kong team was appointed as the Security Trustee and Account Bank for the project. In 2019, the legacy
project financing loan was refinanced via a new Project Financing Loan as well as RegS 144A USD bond. HSBC has
been appointed again as Account Bank and Security Trustee.
HSBC Issuer Services
7 Hong Kong Quality Assurance Agency8 Euromoney Awards, July 2019
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“As part of our involvement in the transaction, we also
monitor the cash flows associated with the bond or the
loan and assist our clients in subjecting them to the
documented terms,” says Iyer.
While a number of agencies already provide this service,
issuers and lenders can gain additional advantages in the
complex value chain of the transaction by appointing a
banking trustee or agent to handle reports, updates and
coordinate the chain of communications with the multiple
parties involved.
Belt and Road Initiative: Ushering in a new
development wave
Since its inception back in 2013, more than 1,800 projects
have been launched in 130 countries as part of China’s
ambitious Belt and Road Initiative (BRI) scheme, a long-
term initiative designed to promote trade, financial and
cultural connections between China and its international
partners9. These have included major infrastructure
projects across Nigeria, Greece and Bangladesh. “HSBC
has played a major role in supporting the financing of a
number of BRI projects,” comments Loomba. In fact, the
bank arranged $525 billion of cross-border financing
involving China between the start of 2017 and September
201910.
As of 2018, HSBC was acting as both adviser and
financing partner in more than 100 BRI programmes11.
“As more opportunities develop around the BRI, there will
be an even greater need for ancillary services such as
escrows. As deal flow grows as a result of BRI, escrows
can be used by market participants to safeguard their
assets during transactions,” says Loomba.
“As more opportunities develop around the
BRI, there will be an even greater need for
ancillary services such as escrows which
can be used by market participants to
safeguard their assets during transactions.”
Suvir Loomba
Head of Issuer Services,
APAC
HSBC Issuer Services
Ganesh Iyer
Global Head of Escrow
Product, Issuer Services
“Borrowers and lenders want
transparency and regular information
flows during the lifecycle of a
transaction. This is something which
Issuer Services as an agent provides.”
9 HSBC (September 25, 2019) Belt and Road award for HSBC10 HSBC (September 25, 2019) Belt and Road award for HSBC11 HSBC (June 14, 2018)Funding the Belt and Road Initiative
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Drew is equally bullish on the region’s potential. “Asia is
home to a number of rapidly growing markets with huge
populations and it is an opportunity that we ought to
seize.”
HSBC Issuer Services has embarked on a strategic
programme to expand its escrow footprint across
prominent BRI locations including Bangladesh, Vietnam,
the Philippines, Malaysia and Sri Lanka.
The energy transition in MENAT
Sustainability is becoming an increasingly important issue
in MENAT. Driven by a combination of evolving
regulations, changing investor behaviour and growing
awareness about the potential risks of stranded assets,
Henshaw says clients are now actively seeking HSBC’s
support in helping them to ‘green’ their businesses.
“Attitudes to sustainability have changed markedly over
the last 12-18 months,” she says. In response, a number
of banks are encouraging clients to embrace sustainability
and are increasingly offering green and sustainability
linked products to clients.
Henshaw expects growth in sustainability linked deals to
continue as awareness around the theme increases in
MENAT.
“Local companies have woken up to
the issue of transition risk and they are
trying to diversify their businesses to
prepare for the future.”
Diversification could usher in an infrastructure
boom
As oil prices depreciated in 2014, commodity and
hydro-carbon dependent markets such as Saudi Arabia
realised they needed to diversify their economy. Key to
this goal is the government’s Vision 2030 scheme, a
sweeping reform initiative that aims to reduce Saudi
Arabia’s historic reliance on oil and instead promote
new industries and develop a viable private sector.
Reports suggest there is approximately $429 billion
earmarked for major infrastructure and industrial
projects as part of Vision 203012. “There is a lot of
optimism that export finance will flourish in Saudi
Arabia once Vision 2030 takes root. We expect to see
increased interest in ECA financing to follow,” she
says.
HSBC Issuer Services
Alyson Henshaw
Head of Global Banking,
Oman
#HSBCescrow: Did you know?
In the Infrastructure and Structured Finance markets, the use of escrow accounts can be applied in a variety of
scenarios. For instance, HSBC Issuer Services have supported clients requiring an escrow account to place funds in
the decommissioning of a wind farm. HSBC’s clients have also been using escrows in the abandonment and
decommissioning of upstream oil and gas facilities.
To find out more about HSBC’s escrow capabilities, follow #HSBCescrow on LinkedIn.
12 CNBC (January 18, 2019) Saudi Arabia seeks more than $425 billion in investments for massive infrastructure program
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Find out more about HSBC Issuer Services:
♦ Website: www.gbm.hsbc.com/issuer-services
♦ LinkedIn: type #HSBCescrow to access our
latest content
♦ Contact:
APAC - [email protected]
Europe - [email protected]
Americas - [email protected]
MENAT: [email protected]
HSBC Issuer Services
HSBC was the ECA co-ordinating and documentation
bank on a transaction involving the Kuwait National
Petroleum Company (KNPC).
Conscious of the growing oil price volatility, KNPC
embarked on an ambitious $14.5 billion scheme to
modernise and upgrade two of its refineries, in order
to deliver efficiencies and minimise its environmental
footprint13.
Funding for this transition was provided through
seven ECAs and 11 banks across six facilities.
Case study:
KNPC
Smart cities
In addition, Henshaw believes smart city development
in the Middle East could also lead to more deal
activity in the ECA world. One of the more ambitious
endeavours planned under Saudi Arabia’s Vision
2030 programme is to develop a new $500 billion
smart city – known as Neom – in the north-western
province of Tabuk. Proponents say the city, which will
be spread over 26,000sq km, will lead the way in
renewable energy production and disruptive
technologies. Elsewhere, the Egyptian authorities are
also investing $58 billion in their own new
administrative capital 45km east of Cairo, which is
projected to become a new centre for government and
finance14. It is hoped this city will ease some of the
pressure on Cairo, whose infrastructure is struggling
under the weight of its rapidly expanding population.
HSBC Issuer Services: Committed to MENAT
A number of local initiatives in MENAT – principally
Saudi Arabia’s Vision 2030 and Dubai Vision 2021 -
are likely to result in an upswell of investment into
infrastructure, transport, renewable energy and
advanced technologies. Moreover, the region is also
well placed to tap into some of the opportunities
presented by China’s Belt and Road programme.
13 GTR Review (April 26, 2018) GTR Best Deals 201814 Reuters (May 13, 2019) Egypt’s new desert capital faces delays as it battles for funding
HSBC has a long-standing history servicing MENAT
markets and clients. Its Issuer Services unit is
investing heavily into expanding its local footprint,
with established offices already in Bahrain, Egypt,
Saudi Arabia and the UAE. In 2020, Issuer Services
will be strengthening its regional presence by
launching new operations in Kuwait and Oman. In
addition to providing customised cross-border and
domestic-market specific services to clients through
its extensive MENAT network, the bank is well
positioned to provide agency and trustee solutions
for clients exploring MENAT trade corridors and
financing opportunities. “Issuer Services is a vital
component to our product offering as it allows us to
provide a unified one bank solution for customers
rather than having them face off to multiple
providers, particularly on sophisticated transactions,”
Henshaw says.
7 HSBC Issuer Services